Fintech company Circle is looking make a better, faster, digital version of the U.S. dollar.
The Goldman Sachs-backed start-up announced a new cryptocurrency pegged to the dollar and a $110 million investment round led by profitable crypto-mining company Bitmain, which brings Circle’s value near $3 billion, the company announced Tuesday.
“It unlocks an incredible amount of power for the dollar,” said Jeremy Allaire, CEO of Circle. “It’s basically a dollar that operates on blockchain.”
Circle is one of the most well-funded blockchain start-ups, with investors including Goldman Sachs Group and Baidu. The fintech company operates its peer-to-peer payment network using blockchain, the technology that underpins bitcoin.
Circle’s new USD Coin is meant to solve a key problem in digital currencies’ use case: Volatility.
Critics including Stan Druckenmiller have said cryptocurrencies can’t be used as a means of payment because their value changes so often and so rapidly. Bitcoin, for example, has been marked by volatility in the past 12 months and has dropped by more than 50 percent since its high near $20,000 in December, according to CoinDesk.
Circle customers will be required to hold $1 for every USD Coin, keeping the price stable. Other companies, such as Tether and Basis, also have offered “stable coins” with a value tied to the U.S. dollar. But Allaire said there’s a need for a “compliant alternative” to Tether, which has a $2.2 billion market cap, according to CoinMarketCap.com.
“When I look at the convergence of traditional finance and the crypto space, it’s begging for that,” Allaire said to a room full of journalists. “There are a number of banks who are excited about it and will support it.”
Once U.S. dollars are transferred to Circle’s USD Coins, Allaire said they can be moved within seconds thanks to blockchain technology. He said they will eventually add tokens for the euro and pound but it’s less likely they’ll immediately look to peg most Asian currencies because of existing competition in that arena.
The framework for the coin is what’s called “open sourced,” meaning multiple developers can work on the project and help its development. The USD Coin project is being developed by an organization called CENTRE, which will provide independent oversight of Circle’s offering.
Bitmain, best known as a crypto “mining” company, is leading a $110 million strategic investment in Circle, which the company said brings its valuation close to $3 billion. The funding round also includes existing investors such as Breyer Capital, Tusk Ventures, IDG Capital, Pantera and Blockchain Capital.
Bitcoin mining requires use of special software to solve math problems in exchange for a certain number of bitcoins. Bitmain dominates that mining industry and likely made as much as chipmaker Nvidia did last year. Bernstein analysts estimate that Bitmain made $3 billion to $4 billion in operating profit in 2017.
The USD Coin is being run on a blockchain known as ethereum, but Allaire said they’re open-minded about other platforms if any come to market that can outperform.
“Ethereum is the best bet but it’s not necessarily the end game,” he said. “For now it’s specifically on Ethereum.”
Circle is one of the leaders in over-the-counter bitcoin trading markets and acquired cryptocurrency exchange Poloniex in February.